2006 Sierra 5.3L 4165e High RPM from 2nd to 3rd

Hi,
I have a 2006 GMC Sierra SLT 1500 with a 4165e transmission. I replaced the motor this past weekend, myself, with a create motor purchased at my local GM dealership. (Piston 7 connecting rod exploded). So all I did was unbolt the old motor and rebolt the new motor to the transmission. I used the GM spec torque on all 3 of the Flex Plate bolts to the torque converter. Shouldn’t be any issues, right? Wrong.

I dont have any issues in 1st gear or in second. But when the transmission shifts from 2nd to third.. The engine will rpm thru the roof and will not grab 3rd until I let my foot off of the gas and the motor’s rpm drops to about 2ooo.

It also smells like I’m burning a clutch even though its an automatic. When I pull the dipstick and smell it, it smells like a clutch.

Could I possibly have a bad transmission that just so happens to have gone out as the same exact time as the engine? Could I have missed a step in the installation process? Any insight would be greatly appreciated.